Market Overview

Phillips 66 Downgraded By Morgan Stanley On Valuation

Phillips 66 Downgraded By Morgan Stanley On Valuation

Phillips 66 Partners LP (NYSE: PSXP), a master limited partnership that owns, operates, develops and acquires mostly fee-based crude oil and other products, boasts a strong underlying business that's overshadowed by stock's premium valuation, according to Morgan Stanley.

The Analyst

Morgan Stanley's Tom Abrams downgraded Phillips 66 Partners from Equal-weight to Underweight with a price target lowered from $55 to $50.

The Thesis

Phillips 66 offers an attractive underlying integrated business with the potential for a high-single-digit organic growth rate, Abrams said in the downgrade note. (See the analyst's track record here.)

The company is well ahead of its dropdown-driven MLPs peers, as it has already completed a necessary shift to focus on organic growth, the analyst said. Some of the company's organic projects that will support a "top-tier" growth profile of 10-12 percent include Sand Hills and Bayou Bridge, he said. 

The company is now at the end of a six-year period where it oversaw 30-percent compounded annual growth in distribution with a best-in-class organic growth profile, Abrams said.

A revision to the stock's rating may be appropriate, as Phillips 66's stock is trading at 14.7 times 2019 estimated EV/EBITDA and 14.5 times 2021 estimated EV/EBITDA, the analyst said. Both of these are one to two turns higher than some of the company's more mature peers with similar growth expectations, he said. 

Morgan Stanley's new $50 price target is based on a combination of the following assumptions: an 11-percent discount rate; 13 times 2019 estimated EV/EBITDA; 12 times 2019 P/DCF and a 6.25-percent yield.

Price Action

Shares of Phillips 66 Partners were trading lower by 0.35 percent at the time of publication Friday. 

Related Links:

Jefferies Issues MLP Update With New Franchise Pick

Morgan Stanley Updates MLP Sector After FERC Decision

Public domain photo via Wikimedia. 

Latest Ratings for PSXP

Feb 2019Credit SuisseMaintainsOutperformOutperform
Feb 2019Stifel NicolausDowngradesBuyHold
Jan 2019JefferiesDowngradesBuyHold

View More Analyst Ratings for PSXP
View the Latest Analyst Ratings

Posted-In: MLP Morgan Stanley Tom AbramsAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga


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